Prenuptial agreements are a useful tool in estate planning. While most people assume that prenuptial agreements are only used to protect assets in the event of divorce, they also play an important role in designing an estate plan that protects both partners’ assets.
First, couples can use prenuptial agreements to designate which assets should be considered separate property, and which are community or shared property. Making this distinction before marriage will prevent separate assets from being wrongly classified as community property when a spouse dies. This is particularly useful for second or subsequent marriages, or for those who are marrying later in life or who have accumulated significant assets prior to the marriage. In some states, marriage entitles each spouse to a share of your estate (between a third to a half, depending on where you live). If you intend to leave less than that amount to your spouse, he or she has the power to request a higher percentage, which can leave your intended beneficiaries with less.
Another reason why many couples choose to have a prenuptial agreement is to avoid disputes about money or property during the marriage. For a prenuptial agreement to be valid and legally binding, both parties must fully disclose their assets, properties, and debts in the agreement. Because their financial picture is clear, there are fewer disagreements about how to manage their assets.
When one fiancée is a member of a closely-held family business, a prenuptial agreement is often used to protect the business. Often, business owners require only family members to be owners of the business and its holdings. If during a divorce, the business is determined to be partially owned by both spouses, the non-familial spouse could end being an owner. In order to alleviate that situation, restrictions could be placed in the business’s agreements, or by transferring ownership of the business to a trust. However, a prenuptial agreement that describes the business as separate property and sets forth the rights and restrictions on ownership would be another layer of protection for the business.
If you are considering getting married (or remarried), a prenuptial agreement may be a good idea. Make an appointment today.
